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BB005 ECONOMICS
INDIVIDUAL ASSIGNMENT
MAY ??“ AUG 2011

Instructions
Answer ALL the questions below and submit your answers on 27th July 2011 in class. All answers must be typed (APA system). Please include the cover page as well. If you submit late:
a) ONE day, 20% will be deducted from the total assignment marks.
b) TWO days, 30% will be deducted from the total assignment marks.
c) THREE days, 40% will be deducted from the total assignment marks.
Any submission after the three days mentioned above will not be accepted. This assignment is worth 10% of your final grade.

Q1 Yesterday, a perfectly competitive producer of construction bricks manufactured
and sold 10,000 bricks per week at a market price that was just equal to the
minimum average variable cost of producing each brick. Today, all the firm??™s
costs are the same, but the market price of bricks has declined.

a) Assuming that this firm has positive fixed costs, did the firm earn economic profits, economic losses, or zero economic profits yesterday Justify your answer.
(5 marks)

b) As for today, which option would be the best for the firm ??“ to continue producing in this market, or shut down Explain your reasons.

(5 marks)

Q2 The following depicts the prices and total costs a local used-book store faces. The
bookstore competes with a number of similar stores, but it capitalizes on its
location and the word-of-mouth reputation of the coffee it serves to its customers.
Calculate the store??™s:
a) total revenue,
(4 marks)
b) total profit,
(4 marks)
c) marginal revenue, and
(4 marks)
d) marginal cost
(4 marks)
at each level of output. Based on the marginal analysis, find the appropriate profit-maximizing level of output for this business.
(5 marks)

|Output |Price per book (RM) |Total costs (RM) |
|0 |6.00 |2.00 |
|1 |5.75 |5.25 |
|2 |5.50 |7.50 |
|3 |5.25 |9.60 |
|4 |5.00 |12.10 |
|5 |4.75 |15.80 |
|6 |4.50 |20.00 |
|7 |4.00 |24.75 |

Q3 Which of the following activities of a computer manufacturer during the current
year are included in this year??™s measure of Gross Domestic Product Support your
answers with explanations.
a) The manufacturer purchases a chip in June, uses it as a component in a computer in August, and sells the computer to a customer in November.
(3 marks)
b) A retail outlet of the company sells a computer manufactured during the current year.
(3 marks)
c) A marketing arm of the company receives fee income during the current year when a buyer of one of its computers elects to use the computer manufacturer as her Internet service provider.
(3 marks)

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